Win-win. The partnership between the Malagasy State and Rio Tinto QMM on the exploitation of Tolagnaro ilmenite is moving to a new stage with a new agreement which was ratified in August 2023. Among other things, Rio Tinto’s commitments in this new agreement including the economic benefits are enormous: social investments amounting to $100 million over the next 25 years. David-Alexandre Tremblay, the executive director of Rio Tinto tells us about it in an interview.
What exactly is the recent agreement with the Malagasy state?
I will start with a little history. In order to be able to develop the exploitation of ilmenite in Taolagnaro, an establishment agreement was concluded in 1998 between the Malagasy State and Rio Tinto. This convention, ratified by the Malagasy National Assembly, sets out all the legal rules applicable to QMM, including tax and customs matters. It provided that the tax regime had to be re-discussed after 25 years, which took us to February 2023. After long, fruitful and open discussions with the government of Madagascar, a new agreement was signed on August 22, 2023, ratified by Parliament and promulgated in accordance with law. This new agreement includes several major points which improve the benefits for Madagascar while preserving the viability of QMM in the long term.
First, the increase in the royalty to 2.5% and then the modification of the dividend policy which allows the government of Madagascar, and by extension, the Malagasy people, to obtain these financial benefits now. The government has committed to investing an amount equal to this first dividend (12 million US dollars) in the 109 km rehabilitation project of the RN13. Rio Tinto will also participate in this project to the tune of US$8 million according to predefined milestones and deadlines.
This investment aligns with the need to open up Fort-Dauphin and stimulate its economic development, including port activities. We also committed to canceling $77 million in advances made on behalf of the State during recapitalizations. Another important point concerns our commitment to doubling our voluntary social contributions to $4 million per year: this is more than $100 million over the next 25 years in favor of local communities and the Anosy region. The agreement also includes major investments in reforestation, protection of biodiversity and energy transition.
It took a long time to conclude, why?
Both parties wanted to explore all avenues for a win-win partnership. The government of Madagascar legitimately wanted to increase the economic and social benefits of this exploitation. For our part, given the nature of our operations and our investment, we needed a framework that allowed us to operate in a stable and predictable manner. Today, we recognize that this agreement provides favorable conditions for us to consider the investments we have planned both in the operation itself, and for our contributions to the economic and social development of the region. I believe that the objective of a win-win partnership has been achieved on both sides, and we are grateful for that.
The State owed you 77 million USD, a debt instead of dividends?
Rio Tinto has agreed to cancel $77 million in advances made to the government of Madagascar to support the financing of QMM. The State will now hold 15% free carry of QMM and will retain its 20% voting rights, with no capital contribution obligation or exposure to dilution.
Rio Tinto QMM talks a lot about sustainable mining, what exactly is it?
The global RioTinto Group seeks to provide the materials the world needs in a sustainable and responsible way. Our strategy is based on a vision, that of leaving current and future generations a lasting legacy built independently of the mine. This approach includes three pillars: decarbonization, minimizing our impact on the environment, and community development.
For decarbonization, we aim to achieve carbon neutrality, that is to say our greenhouse gas balance must be equal to zero by minimizing their generation and compensating the rest through the absorption of greenhouse gases. greenhouse through environmental conservation projects. We also minimize our impact on the environment and we work, for example, to better understand and reduce the impact of our operations on the surrounding environment.
Last, but not least, for community development, our aim is to deliver sustainable value to both our business and host communities, by supporting regional and local development plans and investing in initiatives economic and regional development in synergy with other partners to achieve sustainable and independent growth of the mine.
Decarbonization is often seen as nothing more than a slogan…
However, it is a touch that really sets the Rio Tinto group apart in the world. So, we developed an ambitious renewable energy program and in 2023, 14,000 solar panels are installed and now operating while 19 wind turbines are being installed. There is also our reforestation and protection of primary forests program. 691 ha of forests have been rehabilitated since 2010, 2,136 ha are reforested outside the mining site, 100 hectares of mangroves are planted in Petriky and 100 hectares of native species in the south of the Tsitongambarika protected zone.
We have also created three protected areas, 430 ha in Mandena, 1,365 ha in Ambatoatsinanana in Sainte Luce and 300 ha in Petriky. We are one of the first mining companies in the world to have set up a protected area within its mining perimeter.
Finally, we are financing the preservation of more than 6,000 hectares of conservation areas, including 2,500 ha at Mahabo Analazaha 300 km north of Taolagnaro and 4,000 hectares Bemangidy–Tsitongambarika 70 km from Taolagnaro.
But water pollution is much criticized…
QMM operates in a complex environment. We understand the importance of rebuilding trust with communities and increasing transparency around our operations.
It is very little known but our entire extraction process does not use chemicals. In recent years, we have made great efforts to address these concerns. For example, we conducted and published the results of a comprehensive and independent study on radiation which confirms that our operations are safe in this regard. We have also developed a water management strategy to improve our performance. In this sense, we invested 13 million dollars for the construction of an innovative process water treatment plant.
We also engage in dialogue with our communities to manage and monitor water in our environment in a collaborative and
finally to share information on our practices and our performance in terms of water management. Moreover, our first report on water covering 2021 to 2023 was published last December.
The community seems dissatisfied with your contributions, have you planned any action to this effect?
We are aware of this. This is why we doubled our annual voluntary social contributions in the agreement concluded with the State. That is, once again, $4 million per year over the next 25 years. They will be devoted to community and regional projects developed jointly with the communities. In the recent past, we have contributed $2 million to emergencies in the South, we have awarded 220 scholarships for students in Taolagnaro under the RISE+ program. We help communities in AGR projects such as fish farming, mangrove projects in Petriky, and the three new protected areas through sustainable management of these resources.
I should also mention that with the new solar and wind power plant, we will be able to provide cleaner, renewable energy to nearly 80,000 residents of Fort-Dauphin and surrounding areas. This is a contribution that is particularly close to our hearts.
Solar and wind electricity projects, what can we expect from them?
It is the result of a successful partnership with the government of Madagascar. This is the largest solar farm in the South and the first wind farm on the Big Island.
We commissioned an 8 MW solar power plant in 2023 and it will soon see an extension of 6.3 MW with the addition of a second battery with a capacity of 8.25 MWh. The construction of 19 wind turbines, each with a production capacity of 16 MWp, has already started. All of these commitments are part of Rio Tinto’s efforts to reduce carbon emissions across its global operations.
It is said that 2024 will be difficult for the industry, is this also the case for QMM?
It’s true. You know that our main product is ilmenite, which is mainly used to produce the white pigment used in the paint industry. Due to recent international crises, global consumption of paint has decreased, factories manufacturing this product are closing while the global supply of ilmenite remains strong. Let’s hope that the recovery will be there in 2025.
How will you cope with this gloomy market?
There is no magic solution, you know, you have to maximize productivity and produce “per tonne at the best price”. It is a question of optimizing our way of working, with control of the heaviest operating costs and optimal management of contracts for the supply of goods and services.
Ultimately, we are confident that it is as a team, with our employees, contractors and stakeholders that we will get through this difficult period.
Mr. Tremblay, tell us about your experience in Madagascar.
It’s the most beautiful professional and personal adventure I’ve experienced. This country has a lot of potential and the Malagasy people deserve that the private sector, civil societies and the public sector work hand in hand with them to develop Madagascar in a responsible and sustainable manner. Finally, I don’t believe there is a more beautiful place in the world than Fort-Dauphin to run a mining operation of this scale!
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